Is now a good time to buy?

Is now a good time to buy?

It's
a question that we hear in the real estate industry all the time. The
answer is simple: It's the right time to buy when (1) you want to, (2)
you have a long-term view, and (3) you can afford to.

Buying
patterns are dictated by a multitude of factors, but they mostly have
to do with changes in life circumstance: moving out of your parents'
house, getting married, having a baby, getting transferred for work, and
becoming an empty nester are all strong incentives for changing your
living situation. Sprinkled into this decision are thoughts on what is
going to happen to the real estate market.

But what is going to happen to the real estate market?

Take
this headline from the Globe and Mail: 'Housing Market has Cracks'. The
article, which points to a Canadian housing market bubble, quotes
economist David Rosenberg, who correctly forecasted the US housing
crisis, who says the Canadian housing market is 'overvalued by 15-35%'
and predicts that the market is 'on the verge of collapse'. It's a
common theme in the news today. Except the article was written in 2009,
right before the housing market rose an additional 15%, in spite of its
advice to 'brace yourself for a rough 2010'.

So
it's hard to predict where the housing market is going to go,
especially in the short-term. In the long-term, real estate has been
shown to appreciate at an average of 6-7% annually. Given that principal
residences offer investors the single biggest loophole in the tax code -
capital gains on principal residences are tax-free - similar
investments would need to offer an historical return of 10+% per annum
to compete.

But what if prices do fall in the short-run?

You
may feel like you've made a mistake as prices begin to fall, but so
long as you can afford the payments and you do not move, it doesn't
really matter. The only times that real estate prices matter are the day
you buy and the day you sell. What happens to the market in between is
effectively irrelevant. This is why it's important to buy a home that
you can both afford and be happy with in the medium- to long-term. If
the market turns negative, but you still like and can still afford to
live in your house, there's no need to sell at a loss. Conversely, if
the market moves up, you're participating in its gains.

Like
any investment, however, you need a long-term view. In the short-run,
fluctuations in the market and transaction costs can eat up any gains
that you expect to make. So go ahead. Jump in. But only if you (1) want
to, (2) have a long-term view, and (3) can afford.

Please feel free to get in touch with me any time for questions or comments. owen@owenbigland.com or 604 889-1118

This entry was posted on May 15th, 2012 by Owen Bigland | Posted in General